Financial Portfolio – Analysis, Management, Strategies and Examples

Financial Portfolio Analysis:

A grouping of financial assets like bonds, cash equivalents and bonds along with their mutual, exchange-traded and closed-fund counterparts is called as financial portfolio. Systematical assessment of these financial assets, products and services that make up an individual’s portfolio is termed as financial portfolio analysis.

Based on objective criteria, portfolio analysis enables an investor to determine which of his assets are profitable and which ones are to be phased out. Portfolio analysis consists of subjecting every financial asset through a progression of finer screens. During a time of cutbacks and scarce resources, it is essential to screen out assets that are not essential to individual’s portfolio.

Financial Portfolio Management:

The art and science of asset allocation for individuals, deciding investment mix and policy for them, aligning investments to objectives, and balancing risk against performance is called portfolio management.

Portfolio management is basically about strengths, limitations, opportunities and risks in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and several other tradeoffs that investors bump into in order to optimize the return at a given level of risk involved.

Let’s now discuss about the types of portfolio management. Normally in case of mutual and exchange-traded funds (ETFs), you’ll find two passive portfolio management and active portfolio management.

Passive management is a simple yet effective way of managing portfolio. It follows the trails and simply tracks a market index. It is also known as indexing or index investing. On the other hand Active management entails either a single manager, co-managers (mainly team of two people), or an entire team of managers who, with the virtue of their skills and aptitude they endeavor to pound the market return by dynamically managing a fund’s portfolio through investment decisions which are solely based on market research, past experience and decisions on individual holdings. Generally closed-end funds are managed actively.

Financial Portfolio Strategies:

To tell you about portfolio strategies in simple and plain words, it is a kind of roadmap which can be used by investors in order to optimize their assets to achieve their financial goals. Different portfolio theory refers to propose of optimal portfolios and its insinuation for asset pricing.

Not only is it a moral responsibility but a fiduciary duty of a financial professional to their clients in ascertaining a submissive portfolio constant with their client’s IPS. These fiduciary relations entail any individual who has unrestricted power over another’s financial assets, coupled with an undertaking to act utterly on a client’s behalf. As such, trustees, agents, financial advisers, or corporate directors are subject to the law’s requirements.

Diversification is one of the foundations of Modern Portfolio Theory (MPT). In a market downturn, MPT disciples believe a well-diversified portfolio will outperform a concentrated one. Investors are capable enough to reduce unsystematic risk by developing deeper and relatively broader diversified portfolios by collecting a large number of investments in more than one asset class. Unsystematic risk, unlike systematic risk is associated with investing in the markets generally.

Another robust strategy is known as Stop losses. It protects an investor’s portfolio against falling share prices. Hard stops entail setting off the sale of a stock at a fixed price that doesn’t vary with respect to time. Let’s take an example, suppose you bought a Company A’s stock for INR 1000 per share with a hard stop of INR 800, the stock is automatically sold if the price drops to INR 800.

Personal Financial Portfolio Examples:

Now for those investors who are generally concerned about shielding their principal would like to consider principal-protected notes with equity participation rights. The basic fundamentals are same like bonds in that your principal is usually protected if you hold the investment until maturity. However, the prominent difference is in the equity participation that exists along with the guarantee of principal.

Let’s understand the concept of principal protected investments with a financial portfolio example. Suppose you wished to purchase INR 10,000 in principal-protected notes tied to the S&P 5000. The time period for the maturity of these notes is five years. The issuer would purchase zero coupon bonds that are maturing around the same time as the notes at a discount to face value. The bonds would disburse no interest until maturity when they are cashed in at face value. In the above example INR 10,000 in zero-coupon bonds is purchased for INR 8000, and the remaining INR 2000 is invested in S&P 5000 call options.